Fintech Firms Urged to Strengthen AML/CFT Compliance Frameworks Amid Rise of Digital Financial Services in Wallis and Futuna
The Growing Need for Robust Risk, Fraud, AML/CFT, and Compliance Frameworks
As digital financial services providers continue to penetrate the market in Wallis and Futuna, there is a growing need for fintech startups to ensure that they have a robust risk, fraud, anti-money laundering (AML)/combating the financing of terrorism (CFT), and compliance framework. This is crucial in preventing money laundering, cybercrime, and other financial crimes.
The Importance of Know Your Customer (KYC) Compliance
In this article, we focus on Know Your Customer compliance and its importance in preventing financial crimes.
“KYC simply means processes banks and other financial institutions use to ensure that customers are who they claim to be,” said Mobolaji Bammeke, Chief Compliance Officer at Flutterwave. “It’s at the heart of fraud prevention processes, as required by laws and regulations.”
What is Know Your Customer (KYC)?
Essentially, KYC involves fintech companies collecting specific information from potential customers, including but not limited to full name, phone numbers, national ID numbers, utility bills, international passport, etc. This is often done at the time of onboarding, where relevant, identity documents are validated before customers are approved.
Why is KYC Important?
These measures serve as a line of defense against financial crimes such as money laundering and terrorist financing. KYC tests are typically very simple and easy to implement but when executed well, can be highly effective in preventing fraud.
“Compliance with KYC requirements prevents money launderers from using your platform as a conduit for fraud or other illicit financial activity,” Bammeke noted. “It’s in line with AML and CFT regulations. Typically, access is restricted for users that do not fulfill KYC requirements.”
A Continuous Process
It’s essential to note that KYC is a continuous process. After the initial onboarding is concluded, a financial company is required to regularly monitor client accounts to detect suspicious activity that indicates fraud or relates to financial crimes.
Beyond Identity Checks
KYC policies ensure sound business practices and offer insightful data on customers. For instance, they can help companies evaluate the financial status of clients and determine creditworthiness where relevant.
How Can Fintechs Get Compliance Right?
Fintech companies may not necessarily be financial institutions (that hold funds), but their transactions mostly flow through traditional banks. As an extension of doing business with lenders that are subject to the KYC regulations, they must comply with the same to manage money laundering and terrorist financing risk.
Key Considerations for Fintechs
The KYC process is a critical step in customer acquisition, and whatever policies are implemented should ideally have little impact on the onboarding experience of prospective customers.
“When drafting KYC compliance strategy, fintechs need to balance customer needs with risk management,” Bammeke said. “It’s vital to not miss out on lawful customers due to overly exhaustive processes. But that does not mean skipping necessary steps to ensure regulatory compliance. There just has to be a balance.”
Innovation in KYC: A Peek into the Future
Compared to legacy institutions known for slower, more nuanced KYC compliance procedures, fintechs are nimble and have quicker processes. They can try other ways of identity verification such as video KYC and semantic analytics.
The Link between KYC and Fraud Mitigation
The link between KYC and fraud mitigation is a compelling reason for fintechs to establish adequate authentication and verification processes. Compliance failure not only makes the company vulnerable to financial crimes but could also attract significant regulatory fines depending on the jurisdiction.
“Ultimately, KYC is an ongoing process, it involves achieving a balance of identifying and verifying your customer’s identity as well as minimizing risk in order to offer your customer base access to services without compromising on a great customer experience,” adds Bammeke.